Comments on: Ed DeMarco’s obstructionism A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: TFF Mon, 21 Nov 2011 10:44:24 +0000 StephanieRenee, what you are proposing is much like a “short sale”. The borrowers are able to sell (if they wish) but any profit over the reduced principal goes to the lender. The difference is that your proposal would also reduce the loan payments *without* the borrower needing to move out.

Any government spending program would stimulate the economy, but they might not all do so equally. Your proposal involves a large immediate writedown (e.g. $100k) to provide reduced mortgage payments (e.g. $5k/year lower) over a 30-year period of time. The stimulus would be greater if that $100k were spent over a shorter period of time. This program would benefit a small number of households at a high cost with only a slight increase in expendable income. Simply not effective stimulus.

“The average American did not create the problem we face today.”

Nonsense. The average American happily joined in the game, believing that this was the easy path to wealth. (After all, real estate always rises, right?) The average American was clearly duped — but nonetheless played a critical role in creating the problem. Prices do not shoot through the roof without average American’s borrowing and buying at inflated prices!!!

P.S. Can’t really call them “homeowners” when they have no equity in the property.

By: StephanieRenee Sun, 20 Nov 2011 17:42:37 +0000 I believe that reducing the principal balances on all mortgages would be beneficial to the economy as a whole. Of course everyone who is upside-down is going to want this deal, as they should. But just imagine the positive chain reaction this could initiate! The market would be more liquid – homeowners could sell their homes once again. Demand would increase not only in the real estate market, but all markets. Houses will sell, and thus the demand for housing alone will increase leading to construction, realtor, and broker jobs – just to name a few.

Of course we would need to share the appreciation of our assets with the modifiers. If a homeowner sells the property for a profit in regards to the new principal balance, then the seller should repay the modifier. If the house miraculously sells for a profit that exceeds the forgiven amount, then the seller would be entitled to the difference, only paying the modifier back the amount that was forgiven keeping the remainder of the profit for his or herself. With the increased liquidity in the housing market, more buyers will enter the market increasing mortgages on the books, in turn, more profit opportunities for lenders. As the demand increases, jobs are created. What better way to prevent default than to make sure we are all employed?

DeMarco has been stressing that it is not in the best interest to the tax payers to modify loans in this way. I do not understand how he can say that with the money that this would free up in our economy. If people have that money, they will spend it. The tax payers want to spend money. To spend money, we need jobs. To create jobs, we need demand. To create demand, we need expendable income. Equity in our assets creates confidence and morale. Those with confidence and morale will be more willing to spend money. As we spend money, we create jobs. I know that I’m going in circles with this; maybe I’m missing something. But any way that I look at it, it seems that principal reductions are the best way to go.
The average American did not create the problem we face today. The banking industry has made beaucoup profits at our demise. It is time that the banks correct the problem they created and give us back realistic debt to asset ratios.

By: TFF Fri, 18 Nov 2011 01:51:45 +0000 “We should enforce the current rules & generously disburse welfare to those in need.”

Absolutely! And my apologies to those struggling to make payments on a $500k house, but in my experience “those in need” are not worrying about whether their mortgage is or isn’t underwater. Like the mortgage interest deduction, the benefits from “homeowner rescue” programs flow primarily to the upper middle class.

P.S. My top student is trying to find a way to purchase a $100 TI graphing calculator (the high school standard these days) for math class.

By: dedalus Fri, 18 Nov 2011 01:05:47 +0000 “Then renters are going to point out ‘what the heck is so darn special about owning homes anyway that I’m not getting my $40,000?’ ”


The tech bubble’s collapse wiped out ~$5 trillion. The real estate market’s collapse has (so far) wiped out ~$6 trillion.

What is so special about residential real estate that its increasing affordability should provoke the government — in the words of Jim Grant — to “nationalize the yield curve” — to do everything in its power to prevent further price decline & greater affordability? Why is the govt siding with the longs instead of merely refereeing the market?

We should enforce the current rules & generously disburse welfare to those in need. But the govt should cease trying to manipulate asset prices. Renters like myself listen to leftwing do-gooders and think:

“I wish you’d stop bein’ so good to me.”

By: TFF Thu, 17 Nov 2011 23:28:06 +0000 “@TFF: what you’re looking to do is to bring incomes and housing prices into balance. You could do this by having another housing price crash. Or you could do this by inflating nominial incomes.”

Exactly. Still, we’ll need one or the other before the housing market can truly be considered “repaired”. Stabilizing prices at an unaffordable level isn’t sufficient to bring life back to the real estate market and our economy.

By: Eric377 Thu, 17 Nov 2011 20:38:08 +0000 A key consideration is that principal reductions sponsored by the FHFA are never going to be confidential. So a guaranteed result is going to be to motivate borrowers who have no thought of default demanding equal treatment – after all if the it is the US Treasury funding this why should there be any criteria to pick winners and losers in the underwater mortgages based on ability to pay? Immediately thereafter the non-GSE-guaranteed borrowers are going to start screaming “where’s mine?” Why should a consideration that is mostly arbitrary relative to the borrower – i.e. what arrangement did the lender have with a GSE – make or break getting government dough? Next everybody who lost equity is going to start screaming: why are you shovelling money at those guys simply because they got in with no/low downpayments? WTF? Then renters are going to point out “what the heck is so darn special about owning homes anyway that I’m not getting my $40,000?” You have to be an idiot at this late date not to understand that the political obstacle hasn’t been overcome because such a program will anger many more people than it delights. Well life is not fair, I know, but Pres. Obama understands you can’t help 4 million people and get 80 million people thinking about how they have been shafted and come out ahead politically. This is not a spreadsheet exercise here – it is going to be raw outrage and bitter anger.

By: Y.Alekseyev Thu, 17 Nov 2011 19:13:32 +0000 @klhoughton: all of that is correct of course, but putting the accounting lies “aside” is a mistake. To borrow from Steve Randy Waldman, for banks, “accounting is destiny”. For so long as accounting rules permit banks to carry mortgages at par, they will not pro-actively do mortgage modifications, with the exception of those cases where they’ve acquired a portfolio of loans at less than par. If we could force them to take a writedown to market value, their incentive structure would suddently change.

So to solve a problem that Felix is pointing we need one thing and one thing only: force FHFA/Fannie/Freddie to mark every loan portfolio to market. That’s a legislative step, most likely. If that’s done, however, there would no longer be any “losses” to the taxpayer from doing principal modifications all the way down to the mark.

2. @TFF: what you’re looking to do is to bring incomes and housing prices into balance. You could do this by having another housing price crash. Or you could do this by inflating nominial incomes. In the former case, you are left with the problem that debts are nominal and won’t go down automatically just because collateral has gone down. Inflating incomes, on the other hand, is a strategy that suffers from no such flaws and, moreover, spreads the costs and benefits as equitably as possible.

By: silliness Thu, 17 Nov 2011 10:01:43 +0000 “It stands to reason: if you have equity in your house, you’re going to want to keep that equity. If you have negative equity in your house, not so much.”

OK – if this is correct and defaults correlate with negative equity… then defaulting is a rational and reasonable choice made by the debtor. Good for them! Default. Please, just default and move on.

By: TFF Thu, 17 Nov 2011 02:30:57 +0000 Quick question…

When we talk about “fixing” the housing market, are we looking for ways to sustain ridiculously unaffordable prices that have your average household perpetually teetering on the bring of bankruptcy, or are we looking for ways to bring prices down another 20%-30% as rapidly as possible without shocking the system so that those presently forced to rent might finally afford to buy?

You have to pump very hard to keep a bubble inflated. Letting it collapse is certainly the easier solution.

By: y2kurtus Thu, 17 Nov 2011 02:14:55 +0000 Two points:

First… if we are going to write down principal by $10,000… $20,000… $50,000 plus… well then a very large number of people are going to “sell” their credit rating for that price by intentionally falling behind on their payments to get a loan mod. Suzy Orman will be doing specials on CNBC on just how to do it.

Second… if we are going to change terms greatly benifiting a few at the expence of the many than should we not share in the upside if the house is ever sold above the newly lowerd principal balance. That would at least placate the tea-party cround at some minimal level.